Pssst: Wanna lower your credit card rate?

By Eileen A.J. Connelly
ADVANCE BUSINESS WRITER

Reprinted from the Staten Island Advance, Monday, 10/11/1999 Page A I

Instead of playing "musical cards" trying to chase the latest low interest rate offer to arrive in your mailbox, try asking your current credit card company to reduce the rate you pay.

A little known tactic that can save someone with high balances hundreds or even thousands of dollars is asking the bank that issued the card to reduce the interest rate. While the reduction may not bring a 19.9 percent rate down to the enticing 3.9 percent offer that arrived in the mail, a lower rate can be accomplished with a simple phone call.

"It's a very competitive marketplace and banks are bending over backwards to keep their customers," said Patricia Boerger, a spokeswoman for the American Bankers Association, a Washington-based industry group. "It's always good to call your bank."

"Banks might have many products that they offer and they might have come out with a newer and better product since you got your card," Ms. Boerger continued. "Just like you might have to replace your wallet every few years, call your bank every few years to get a new deal."

There are no statistics to show how often banks will agree to reduce interest rates for credit card customers who request it, Ms. Boerger said. "Different banks have different strategies," she said.

For some people, trying to get interest rates reduced may be a last-ditch effort to avoid bankruptcy, something West Brighton bankruptcy attorney Paul Hollender said may be too little, too late.

"My experience has been when people's problems are so extreme that they have to start calling credit card companies to reduce their interest rate, they usually have a lot of debt," Hollender said. "The amount of benefit they're going to get is so minuscule compared to their problems, that it's a waste of time. "

For example, he said, the payments on $30,000 of credit debt at 22 percent interest comes out to $550 per month. Even if banks reduce the interest to 10 percent, he said, that will save just $125 a month, an amount that may be too small to actually help the individual reduce their total debt.

"When people come to me with this idea, I usually tell them to try on their own to do it, rather than pay a lawyer to do it," Hollender said. If it doesn't work, he advises them to come back to talk about filing for bankruptcy.

Reducing the interest on credit cards is not just for people with an overwhelming amount of debt, according to debt counselors and consumer advocates. Even those credit card holders with a moderate balance on their cards may benefit enough to make it worth the time it takes to make the call.

Stephen Brobeck, executive director of the Consumer Federation of America, an umbrella organization of nationwide consumer groups, said the chances of convincing a bank to reduce the interest rate on a card will depend on the best offers available at the time of the call and other factors, including the balances the customer carries and the current rate of the card.

"The higher the rate they're paying, the easier it will be to negotiate a lower rate," Brobeek said.

Stephen Rhode, president of Debt Counselors of America, which helps consumers with high debt avoid bankruptcy by arranging payment plans, said he encourages clients to contact their creditors. "It never hurts to call them to ask," Rhode said.

The people with the best chance of getting rate reductions are those who have done a good job of paying bills in the past and have carried a balance on the card, Rhode said.

"The reduction in interest goes against their payment history with that particular institution," agreed Brobeek.

A customer with close to excellent credit, paying more than the minimum payments each month and no late payments, is most likely to benefit from making such a call, according to Ralph Alvarez, community relations manager of Consumer Credit Counseling Service of Southern New York, a debt management program, which has an office at 60 Bay St., St. George. "The chances are greater for someone to get a reduced interest," he said.

When a customer calls, Alvarez said, they should expect the company to look at least the last six months or year of payments. "If there is even one late payment, they will not offer you reduced interest," he said.

"Usually the consumers that receive these types of perks are those with excellent credit," he emphasized.

Rhode suggested gathering together a few of the most recent offers to arrive in the mail from other companies before calling, and explaining to the bank that you are willing to switch companies if they don't reduce your rate. Rhode said to ask for a specific reduction, such as three points off the current rate. The bank may be willing to shave just two points off, he said. It's up to the individual consumer to decide whether that's enough of a reduction or if he or she is willing to carry through on the threat to go to another bank.

Bill payment history is likely to be the single most important indicator of whether or not a bank will reduce the rate it's charging, Rhode said. "The largest factor of an interest rate is the amount of risk," he explained.

Rhode gave even money on the odds of convincing a bank to reduce interest rates.

But Alvarez was less optimistic about an individual's chances for success. "From experience, it's really close to nothing that someone will get a reduced rate," he said. "I think what has happened is the companies have gotten hip to the fact that consumers are just calling and threatening, if threatening is a good word to use, to transfer balances to lower rate."

In some cases, carrying a high balance may help the cause, Alvarez said. "They might want to keep you because they're going to review that history," he said, explaining that card companies make the bulk of their profits on interest and someone with a high balance will produce more income over the long run. "They may want to strike a deal with you because they know they're chewing up a lot of interest because of the balance," he said.

Even if a bank does agree to reduce the rate, Alvarez said it is unlikely the difference will be dramatic.

"It is possible to get a lower interest, maybe 4 to 6 percent lower than what you currently have," he said. "To go from a 17 percent interest rate down to a 3.9 percent through a phone call, it's very rare that they will reduce that much."

"It's not impossible, but rare," Alvarez stated.

Rhode pointed out that customers who pay off their credit bills each month don't need to worry as much about interest rates as they do about other cost factors, such as annual fees, charges for late payments or credit limits.

Alvarez agreed, adding to Rhode's list the grace period between purchases and interest rate accruals and other amenities such as insurance and protection programs aimed at guarding against losses if the card is lost or stolen, and even airline miles or discounts with trips or car rentals. Switching cards for a lower interest rate may not actually save money if all the perks are added together, he said.

Before switching for lower interest, and especially if large balances aren't a problem, Alvarez said consumers should evaluate what each card is worth in total.

But in the current market, it is always worth the trouble to make the call.

"In this day and age, everything's negotiable," Ms. Boerger said. "Whether you're talking about buying a car or negotiating the price for someone to come and put a new roof on your house as well as what you're going to pay for bank fees."

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